Seeking Alpha
Research analyst, long/short equity, tech
Profile| Send Message|
( followers)  

Akamai (NASDAQ:AKAM) operates a global network of servers that help large websites like Yahoo (NASDAQ:YHOO) and Monster (NASDAQ:MNST) deliver content to their end users. Akamai’s technology provides faster, more reliable downloads of shopping, media, gaming and other content.

Based on Akamai’s strong second-quarter earnings report, we have revised the Trefis stock price estimate from $27.37 to $28.41. We are particularly intrigued by the sharp rise in e-commerce customer signups that Akamai’s management noted in the earnings report. If this trend continues, it could potentially drive an additional 5% upside for the stock. Our analysis follows below.

E-commerce Customer Growth

We currently forecast that the total number of Akamai’s online shopping customers will increase from about 1600 in 2009 to about 2300 by the end of our forecast period. This implies an average annual growth rate of close to 5.5%.

However, Akamai’s share value could rise by an additional 5% if e-commerce customer signups continue at their current rapid rate for a few more years.

You can modify the trend-line in the chart below to create your own e-commerce customer estimate and see see how it impacts Akamai’s stock price.

Value-Added Services

Akamai offers a number of value-added services for e-commerce websites. These include Advertising Decision Solutions, a suite of analytic services that help customers optimize their online advertising budgets, firewall capability for web applications, and tokenization software that protects customer credit-card numbers.

Akamai says that about three-fourths of its e-commerce revenue can now be attributed to value-added services, which are being adopted by numerous customers who don’t necessarily use Akamai’s content delivery network (CDN).

As a result, Akamai is transforming its e-commerce vertical from a relatively commoditized, CDN-driven business to a more differentiated software services business where Akamai currently enjoys a significant lead.

Disclosure: No positions

Source: Akamai Could See 5% Upside From E-Commerce Growth